Public Bill Committee

[David Taylor in the Chair]

Clause 5

Up-rating of basic pension etc. and standard minimum guarantee by reference to earnings

Amendment proposed [25 January]: No. 1, in clause 5, page 5, leave out lines 32 to 38.—[Mr. Waterson.]

Question again proposed, That the amendment be made.

David Taylor: I remind the Committee that with this we are discussing the following amendments:
No. 29, in clause 5, page 5, line 38, at end insert
‘; or by a percentage not less than the percentage by which the general level of prices is greater at the end of the period than it was at the beginning, whichever is the higher.’.
No. 2, in clause 5, page 5, leave out lines 39 to 41.
No. 31, in clause 5, page 5, line 41, at end insert—
‘(3A) The general level of earnings shall be defined as the Average Earnings Index.
(3B) The general level of prices shall be defined as the Retail Prices Index.’.
No. 3, in clause 5, page 5, leave out lines 42 to 44.
No. 4, in clause 5, page 6, line 13, leave out from ‘shall’ to end of line 14 and insert
‘determine the general level of earnings as set out in subsections (8A) and (8B).
(8A) If the average earnings index (including bonuses) for the whole economy for September in any year is higher than the index for the previous September, the Secretary of State shall as soon as practicable make an order in relation to each sum mentioned in subsection (1), increasing each sum, if the new index is higher, by the same percentage as the amount of the increase of the index.
(8B) In making the calculation required by subsection (8A), the Secretary of State shall in the case of the sums set out in subsections (1)(a) to (1)(d) inclusive, round up the result to the nearest 10 pence.’.
No. 33, in clause 5, page 6, line 14, leave out ‘he thinks fit’ and insert
‘may be approved by resolution of each House of Parliament’.
No. 5, in clause 5, page 7, line 3, at end insert—
‘(6A) The Secretary of State must, within six months of the beginning of the Parliament referred to in subsection (6), inform Parliament by means of an oral statement of the date at which the provision set out in this section could be afforded.’.
No. 78, in clause 5, page 7, line 3, at end insert—
‘(6A) The Secretary if State must, on or before 5th April 2009, announce his decision as to the date from which he will implement the provision set out in this section.’.

Nigel Waterson: Good morning, Mr Taylor. Welcome to week two of the Committee. I am sure that the time is flying by. It falls to me to respond to what in many ways has been a fascinating debate on this group of amendments. I will try to do so fairly briefly. It is worth just commenting at the outset that both the Minister and the hon. Member for Yeovil tried a little too hard to justify the fact that neither of their parties, unlike ours, fought the last election on restoring the link with earnings. I should perhaps remind the Committee that we got there first.
For the record, as the Minister seemed a bit confused about this, we remain in favour of restoring the link with earnings. We agree with the Government that it must be affordable—not a word that appears very often in the Liberal Democrat lexicon. The point was made last week, I think by the hon. Member for Yeovil, that this use of the increase of the state pension age as a kind of smokescreen for putting off the day of restoring the link seems to be a very recent addition to the Government’s armoury on this issue. We think that this is a bit of an afterthought and an excuse. I do not intend to press amendments Nos. 1 and 2 to a Division. We have made our points on those.
I was fascinated to hear what the Minister had to say about amendment No. 3 and his suggestion that it amounted to a spending commitment of £1 billion, although that is dwarfed by the amendment tabled by the hon. Member for Northampton, North which would cost £14 billion. One wonders how that figure is reached. Certainly we would take out the words “up or down” by removing the whole of that subsection, but how can the Minister look into a crystal ball and decide that this will be the cost in future? That will be determined by future changes in average earnings and the extent to which levelling up or down arises. Perhaps he was pulling my leg. I am a good sport, so I will take it in the spirit in which it was intended. In any event, it will be a relief to him and to the Chancellor that I do not intend to press amendment No. 3 to a vote either.
I am, however, minded to press amendment No. 4, and I was emboldened by what the hon. Member for Yeovil had to say on the subject. This is one of a series of amendments promoted, to give credit where credit is due, by Mr. David Yeandle of the Engineering Employers Federation, who has been very helpful on many aspects of this Bill. The Minister went to enormous lengths to deal with the points made by the hon. Member for Yeovil about putting in an alternative to “of earnings and prices”. To some extent, I understand the reason for that, but his only arguments against amendment No. 4 appeared to be the need for flexibility. Well, flexibility is very nice when one has a credit card or is going on holiday, but I doubt whether it is a key function of pensions legislation.
The Minister cited the fact that for one brief period in late 1998 and early 1999, the Office for National Statistics suspended publication of this particular index. It seems to us that he is getting over-anxious about this. If some ghastly development were to occur so that this index was no longer used, it would be a matter of a moment for that future Government to pass brief legislation to deal with the issue. The Minister said rather delphically:
“The point is that different circumstances may call for the use of different uprating measures”.
He then talked about the flexibility
“to enable us to adapt to technical changes or different approaches if we need to.”
However, he got back on track when he confirmed:
“We have made it clear that we intend to use that index”——[Official Report, Pensions Public Bill Committee, 25 January 2007; cc. 145-6.]—
that index being the earnings index set out in my amendment.
There comes a point in every Committee on every Bill at which the Minister says, “Well we intend to do that, but we do not want to put it in the Bill.” The Opposition say, “Why not put it in the Bill if that is what you intend?”. The whole ballet goes round and round in circles. Given that the Minister has confirmed his clear intention to use that particular index, we cannot see any good reason why that should not be in the Bill. I will urge hon. Members to support amendment No 4 in due course.
 With all due respect, the Minister did not deal seriously with my amendment No. 78. The amendment is still valid and important. It would require the Secretary of State to make an announcement about the intention to implement the restoration of the link “on or before” 5 April 2009. I was pretty open in my purpose, which was to ensure that, prior to the most likely date for the next general election, the Government should come clean on the issue. I find it inexplicable that they would do anything else. As I said, I even think it possible that the Chancellor, in his first 100 days, might see this as one of his eye-catching initiatives. I am sure that I also speak for the hon. Member for Yeovil, but the Opposition parties will absolutely have something in their manifestos about this, so it is a bit puzzling that the governing party is not prepared to make that commitment.
 For the reasons given, the debate is a bit academic, because I am sure that things will be made clear. Particularly if the Government continue to be behind in the opinion polls, they will want to say something warm and cuddly about pensions. Announcing the date of restoration of the link strikes me as something that they could not avoid doing, unless it is completely off the agenda because the economy is in such a state by then.
So, Mr. Taylor, I would like to give notice that, at the appropriate moment, I would like to press both amendments Nos. 4 and 78 to a vote.

David Taylor: Order. The Minister has responded to the debate in the main. He wishes to respond briefly to the comments made by the hon. Member for Eastbourne.

James Purnell: Thank you, Mr. Taylor. It is a pleasure to be serving under your chairmanship this morning. I respect the right of the hon. Gentleman to press his amendments, but I will ask my colleagues to resist. I will pick up on a couple of his points, which I did not cover earlier in the debate.
 The hon. Member for Eastbourne tried to say that we were confused about Conservative policy on uprating. That is slightly tendentious, if I may say so. Even today, he still did not clarify whether his party’s policy is that the state pension should be uprated with earnings from now, which is what his shadow Secretary of State said on Second Reading. The hon. Member for Eastbourne failed to say whether that was the Conservatives’ policy or not. If anyone’s policy is confused, it is the Conservative party’s. At least the Liberal Democrats’ policy is clear—they will just spend, spend, spend. What we do not know is whether the hon. Member for Eastbourne agrees with his shadow Secretary of State; he has not resolved that confusion today.
 On the £1 billion, I do not have a crystal ball, but there are analysts in the Department for Work and Pensions who do and who have looked at the precise wording of his amendment. I made it clear that I was sure that the Conservatives’ intention in tabling that amendment was not to cause an increase in expenditure, but that would be a result of the compound increases of 10p on a yearly basis.
 The hon. Gentleman is trying to come up with new arrangements for specifying the amount of earnings. He is right that one always comes to a moment in Committee when the Opposition say, “Put it in the Bill”, and the Government say, “That is our intention anyhow, so it is unnecessary.” The existing arrangements have worked well. They have worked well with pension credit. There has not been an issue of substance caused by the proposals, so maintaining the flexibility which the current legislation gives us and which is mapped into the new arrangements from the current legislation is more appropriate. I say, “If it isn’t broke, why try and fix it?” I urge my colleagues to agree.
Finally, the hon. Gentleman said that I had not addressed his argument on amendment No. 78. I thought that I had. What the Conservatives and Liberal Democrats put in their manifestos is obviously up to them, but I would treat cautiously an attempt by the hon. Member for Eastbourne to write my party’s manifesto, although I am sure that he would like to do that. As much as I have great respect for him, however, I am not sure that he would necessarily do with it what we would want.
So the truth is that we have a clear policy on the matter, which is set out in the White Paper and legislated for in the Bill. The hon. Gentleman might not agree with it, but we believe that it is the right approach and, therefore, I urge my colleagues to resist the amendment.

Nigel Waterson: I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment proposed: No. 29, in clause 5, page 5, line 38, at end insert
‘; or by a percentage not less than the percentage by which the general level of prices is greater at the end of the period than it was at the beginning, whichever is the higher.’.—[Mr. Laws.]

The Committee divided: Ayes 2, Noes 10.

Question accordingly negatived.

David Laws: I beg to move amendment No. 32, in clause 5, page 6, line 10, leave out from ‘force’ to end of line 11 and insert ‘from 1st April 2008.’.

David Taylor: With this it will be convenient to discuss the following: Amendment No. 35, in clause 5, page 6, line 43, leave out ‘1st April 2011’ and insert
‘the first 1st April after the first meeting of the next Parliament’.
Amendment No. 36, in clause 5, page 6, line 44, leave out subsections (5) to (7).
Amendment No. 76, in clause 5, page 6, line 46, leave out ‘the relevant dissolution date’ and insert ‘6th April 2013’.
Amendment No. 77, in clause 5, page 7, line 1, leave out subsection (6).
New clause 19—Linking the introduction of uprating the basic state pension in line with earnings and the increase in the state pension age—
‘For each additional year after 2012 that retirement pensions referred to in section 23A(1)(b) of SSCBA (inserted by section 3 of this Act) or not uprated in line with the general level of earnings as defined in section 150A(2) of the Administration Act (inserted by section 5(2) of this Act) the increase in state pension age shall be delayed by an additional year.’.

David Laws: Mr. Taylor, it is a pleasure to serve under your chairmanship again. I say good morning to all Committee members. Mr. Taylor, you will recall that I held back from making a long and detailed speech on the last cluster of amendments, in the knowledge that we would have a great opportunity this morning to discuss those now before us. Obviously, I did not want to repeat myself.
The amendments deal with some of the issues touched on by the hon. Member for Eastbourne when he spoke to the last set of amendments, and they deal in a bit more detail with the timing of the restoration of the earnings link. They raise other interesting issues about affordability, the implications of delaying restoration and the extent to which restoration of the link is inextricably linked to increasing the basic state pension ages.
I had better begin, however, with an admission. There comes a time in the consideration of every such Bill when a scantily resourced Opposition spokesman must admit that an amendment does not reach the intended heights of perfection. There may be some ambiguity in amendments Nos. 32 and 34, which the Minister will have spotted, although the latter was fortuitously not selected for debate, so I do not have to discuss it.
In case there is any cause for doubt about what my amendments and new clause seek to achieve, I shall explain in plain language. I hope that the Minister will be generous and kind enough, after the weekend break, to conduct the debate on that basis. We believe that the restoration of the earnings link should take place as soon as possible. We are very disappointed that the Government are waiting until 2012—two years after the Turner Commission indicated was appropriate. We are also disappointed that there is an element of uncertainty, as the hon. Member for Eastbourne mentioned; it is possible that the link will not be restored until 2015.
We want the Bill to make clear when the Government will make an announcement on that issue. I am assuming that this Parliament will go the full five years and that there will be an announcement about the earnings link in the first year of the next Parliament, which is where the April 2011 date comes from.
We are wondering why the Government have not sought to put a detail into the Bill to clarify that whenever the start of the next Parliament, there will be an announcement on the uprating within the first year. We all know that there is a lot of speculation at the moment about the changeover of power at the top of Government in this country, and the possibility that there might be an early general election—perhaps as soon as this year. If that were to be the case, we would not want any uncertainty about the commitment that the Government have already made in very clear terms, which is that there will be an announcement on the timing of the restoration of the earnings link at the beginning of the next Parliament. We want to make sure that there is appropriate flexibility to ensure that that will happen, even if the next Parliament occurs surprisingly quickly.
The third issue that we are seeking to raise in these amendments and which is in new clause 19, is the extent to which the restoration of the earnings link should be tied to the increase in the state pension age. We know that prior to the Turner commission no British political party has proposed that there should be higher state pension ages. This is potentially an unpopular and controversial matter with the public. It has been acceptable to all the parties, and to Back Benchers in all the parties, precisely because the offset has been a restoration of the earnings link. So there is a piece of good news to go against the piece of bad news about the state pension age. The Government have said a number of times that these two things—the good news and the bad news—are inextricably linked. New clause 19 will test whether there really is an inextricable link, or whether the Government might delay the good news while not even contemplating delaying the bad news.
It is worth starting off by noting that there is quite broad concern about the fact that the Government are going to take so long to restore the earnings link. This was an issue that the Select Committee on Work and Pensions looked at in detail when it took evidence on the Government’s proposals. The hon. Member for Weston-super-Mare will be aware that the Committee concluded on a cross-party basis that, although it welcomes the decision to re-link the basic state pension to earnings, it was
“concerned by the inconsistency between the unequivocal statement that the link will be re-established by the end of the next Parliament ‘in any event’ and the Secretary of State’s statement that affordability would come first.”
The Select Committee concluded:
“We ask the Government to clarify this. In our view the link should be restored as soon as possible, and certainly no later than April 2012.”
 This is a big issue for the existing generation of pensioners right across the country. The Committee will be fascinated to know that I was in Worthing yesterday, talking to a large group of pensioners. The particular issue that they wanted me to raise with the Minister was why there is nothing in the Bill for the existing generation of pensioners. Why will they have to wait so long before the earnings linked is restored?
The Minister will be aware that a number of the representations on the Bill from pensioners groups highlight their concerns about the delays that will be involved. I have a good briefing note here from the National Pensioners Convention, which points out that, relative to the wider population, the pensioner’s income will continue to fall for at least five or six years, as a consequence of the delay in the earnings link. On the basis of its calculations, 3 million of the present pensioner population will not be around to see the link restored because they will not be alive by then. It also points out—as do a number of the other pensioner representative groups—that by the time the restoration of the earnings link takes place, the basic state pension will have shrivelled further in relation to earnings to just £75 a week in current earnings’ terms, or 12 per cent. of average earnings. Other groups, such as Age Concern, made similar points. Even one of the Government’s favourite think-tanks, the Institute for Public Policy Research, indicated that it would like to see the earnings link restored immediately.
 Therefore, there is this issue about why the Government are delaying the restoration of the earnings link, and what the implications of that delay will be. Not only will pensioners be worse off than they might be otherwise, but every year that the restoration of the earnings link is delayed the number of pensioners who will be on means-tested benefits in the future will rise. That rise will be locked in for the future, undermining the Government’s hopes that the proportion of pensioners facing a life of means-testing will fall.
 The Work and Pensions Committee, when it took evidence, helpfully highlighted how the failure to restore the earnings link until 2012 or 2015 will increase the proportion of pensioners on means-tested benefits. In a note of evidence, dated 30 June 2006, that was given by the Department for Work and Pensions itself, there are figures—figures from the Department, not from the Pensions Policy Institute or another independent body—that seem to indicate that, if the earnings link were to be restored immediately, the proportion of pensioners on means-tested benefits by 2050 would only be about 26 or 27 per cent., which is below the existing estimates. By contrast, if the restoration of the earnings link is delayed until 2015, about 32 per cent. of the pensioner population would be on means-tested benefits, based on the Government’s own figures. That is quite a large difference. It means that, compared with restoring the earnings link now and restoring it at the latest date that the Government concede that they might restore it, there would be about 6 per cent. more pensioners on means-tested benefits, which would be nearly 25 per cent. more pensioners on means-tested benefits than would be the case if the earnings link were restored immediately.
Therefore, this is not just an issue about the incomes of existing pensioners; it also relates directly to the range of concerns that have been expressed about the sustainability of the Government’s pensions policy and the reliance on means-testing.
It is necessary for us to touch briefly on why the Government have decided that there should be a delay in restoring the earnings link. The Secretary of State set out the Government’s position when he made his statement on pension reform on 25 May 2006. He indicated that the Government’s objective of restoring the earnings link in 2012 was subject to affordability and to the fiscal position. He made it clear that the Government would make a statement on the issue at the beginning of the next Parliament—not in 2011, but at the beginning of the next Parliament.
 There were some very interesting exchanges indeed in the Work and Pensions Committee about this issue—about why the Government had decided that it was not possible to restore the earnings link now. The hon. Member for Putney (Justine Greening) was magnificently persistent—for about three pages of the transcript that has been printed from that sitting of the Select Committee—in trying to get an answer from the Secretary of State about why he was delaying the restoration of the earnings link. It was quite clear that the Secretary of State understood that there is a big problem with the delay in restoring the earnings link. He said:
“It is not desirable. I clearly accept that.”
 As the hon. Member for Putney also pointed out in that sitting, Lord Turner had indicated that, although he was just about willing to tolerate having his proposals about the 2010 date ignored and the Government delaying the restoration of the earnings link until 2012, he had also said that any delay in the implementation of the process in 2012 could undermine the balance of the overall policy package. That was obviously a serious concern for Lord Turner to express.
 The interesting element of that debate between the Secretary of State and the hon. Member for Putney was that the Government appeared to be taking the position that they could not give a cast-iron commitment to restore the earnings link in 2012, because of issues about affordability and the fiscal position at that stage in the economic cycle. However, under questioning from the hon. Member for Putney, the Secretary of State indicated that there was no concern about public service expenditure. So it seemed to be in the Secretary of State’s mind that there was concern about the 2012 date; the concern that somehow the economy would go off the rails and that the fiscal position would deteriorate, and therefore that it would plainly be irresponsible to be firmly pinned down to a date. However, as the hon. Member for Putney persistently pointed out, it is somewhat bizarre to suggest that there will be uncertainty about affordability in 2012 but that there will be such certainty three years later that the Government are in a position to announce the restoration of the earnings link come what may. They seem to be trying to hold two different positions: that they cannot make a commitment with regard to 2012 because that might be unaffordable, and that it will be affordable in 2015, come what may. How it is possible to be sure that something will be affordable in 2015 when it is not possible to be sure that it will be affordable in 2012 was beyond most members of the Committee, as they indicated in their conclusions.
 We must also point out that in his evidence on that occasion the Secretary of Sate threw further uncertainty into the mix under intensive questioning by the hon. Member for Putney. When she asked what would happen if there were an affordability issue—whether the package of pension reforms or affordability and the public finances would come first—he indicated that the priority would be affordability. He almost seemed to suggest that the Government have a problem with the policy, because the Chancellor is not allowing the earnings link to be restored until 2012 and possibly not until 2015, so we have uncertainty as to whether the situation will be affordable by 2015. The Committee pointed out in its conclusions that it was concerned about that inconsistency in the Government’s position. In their response to the report, the Government claimed that there was no ambiguity about the commitment. I hope that we will find out about that today.
The other element of the earnings link issue is to understand how clearly the restoration of the earnings link is tied to the higher state pension age. We know that when Lord Turner made his recommendations he wanted the earnings link to be restored in 2010, and that he thought that that was affordable. We also know that he wanted a higher state pension age, and suggested that that should come in in the late 2020s. However, in the package that was announced by the Secretary of State, the Government brought forward the higher state pension age and delayed the restoration of the earnings link. That was regrettable—it has caused concern among a lot of people, not least the existing pensioner population—and it raises a further, more fundamental, issue about whether the two parts of the policy package are tied up very closely. The White Paper published in May 2006 claimed at paragraph 3.25 that the restoration of the earnings link is “inextricably linked” to two other elements of the reform package.
Another Conservative Member raised the issue on Second Reading. He asked why the restoration of the earnings link would be affordable in 2012 but not today. The Secretary of State responded by saying that it was
“Because it is linked with our policy for increasing the state pension age.”—[Official Report, 16 January 2007; Vol. 455, c. 662.]
That appeared to imply that the funding of the pledge was inextricably linked to the increase in the state pension age.
 New clause 19 simply seeks to ask the Government to confirm what appears to be their position, namely that the two pieces of news, one good and one bad, are inextricably linked, and that we are not going to end up in a situation in which they keep delaying the earnings link yet implement the increase in state pension age on the stated date. I invite the Minister to accept that those two things are inextricably linked in the package. If there is a delay beyond the date that the Government have given in restoring the earnings link, they ought to delay the increase of the state pension age. Those are important issues; we discussed some of them in the debate the other day, led by the hon. Member for Eastbourne, but the amendments probe the Government further. We hope for some detailed responses from the Minister.

Nigel Waterson: I shall be brief, because as the hon. Member for Yeovil pointed out there is a danger of repeating oneself on this group of amendments.
As long as these are genuinely probing amendments, we support them, as this issue remains in need of probing. The Government cannot have it both ways. In a great burst of glory, they announced that they will restore the earnings link, following the Chancellor’s personal odyssey from opposing the link to coming round grudgingly to restoring it. They then said that it would happen some time in the medium term: 2012, 2015, or perhaps even later depending on affordability. Why the Government are not prepared to advance at least the announcement of the restoration of the link remains a mystery to us, as it does to the hon. Member for Yeovil. I agree with him that it is difficult to see how affordability can change dramatically between 2012 and 2015. I will be interested to hear from the Minister why he thinks it will be unaffordable before then. On the basis of what calculations does he think that?
At the risk of breaking my own rule, I should like to repeat something that I said in the last debate. I am still rather sceptical about the much more recent linking of the increase of the state pension age to the restoration of the earnings link. Like the rest of the Committee, I am agog to hear what the Minister says on those points.

Angela Smith: I shall speak against the amendment. This is not an argument about affordability from the point of view of the Treasury; it is about economic stability and the potential impact of instability on pensioners and their children and grandchildren.
I want to test the Minister on the commitment to introducing the new link as soon as possible. Of course, 2012 is a much preferred date: I would not like to think that the delay would stretch to 2015. I would like to hear from the Minister about the DWP’s commitment to press the Treasury for the earliest possible introduction of the link after the next general election. 
The background to this debate bears rehearsing. Pension credit has reduced pensioner poverty considerably. In a previous debate, I intervened to point out that the net income of the poorest 20 per cent. grew by just 28 per cent. between 1980 and 1997, while for the top 20 per cent. it increased by 76 per cent. The pension credit is now paid to 2.65 million households. In Sheffield, Hillsborough, the average credit for the 5,340 pensioner households that receive it is £40. That is a considerable contribution to reducing the gap between the richest pensioners and the poorest.

Nigel Waterson: Does the hon. Lady accept that there are still 1.5 million pensioners not receiving pension credit who are entitled to it? Does she agree that the best way of helping the poorest pensioners is to boost the basic state pension, of which the take-up, I guess, is 99 per cent.?

Angela Smith: The hon. Gentleman makes an important point. In a previous debate, the Minister said that every effort is being made to ensure that all those eligible for the credit are encouraged to apply for it. The pension credit has got us to a point at which we can start to think about universal measures to reduce pensioner poverty even further.

Sally Keeble: Does my hon. Friend accept that contrary to what the hon. Member for Eastbourne said, if the basic state pension is increased it misses out a swathe of the poorest pensioners who are not on the basic state pension: women who have never had the entitlement? That is fundamental in tackling pensioner poverty and inequalities.

Angela Smith: My hon. Friend makes a valid point. The Bill contains a settlement, a package that is designed to give the right combination of universal coverage to increase the number of women who get the full basic state pension—up to 90 per cent. by 2020. It is a combination of security and incentives to save for retirement and I applaud it.
 However, we need to test the date of introduction and I look forward to the Minister’s comments on that matter. We must remember that people in the generation coming up to retirement age who are 65 this year, are not ready to put their feet up— Paul McCartney is 65 this year. It is the generation that produced the Stones and the Beatles, and it does not consider itself old in any way. That generation has contributed a great deal to British society, but it also suffered rising unemployment in the 1970s, the three-day week and the mass unemployment in the 1980s. In my constituency, Corus, one of the main employers, employed 6,000 people in the early 1980s and now employs only 600, albeit in very high-value, highly skilled jobs. It is the generation that suffered a collapse in the housing market, high interest rates and inflation in the 1990s.
The key point to bear in mind when we consider the introduction of the earnings link is that the generation that is retiring now values economic stability more than any other in recent years because it has experienced the full impact of economic instability. We cannot do anything that destabilises economic prosperity or risks doing so, because that generation of pensioners understands the importance of having the money in the Treasury in the first place to pay for the earnings link.
Members of that generation value economic stability for their children and grandchildren. It is not true that pensioners are selfish people who think of no one but themselves. Pensioners have worked all their lives, they have brought up children and they want to be able to enjoy their retirement and to see their children and grandchildren enjoying life, enjoying prosperity and seeing that their young ones are doing better than they did, if possible.
We must put the issue in a wider context: that economic stability provides the Government with the resources to invest in health, education, housing and all the other things that are as important as the subject of this debate. It would be reckless to tie the Government to the introduction of the earnings link in 2008-09. Nevertheless, I ask the Minister to respond to the genuine concern about a potential delay to 2015. It is important that the link is introduced as soon as possible, but the judgment about when that will be is incredibly important and I want to know the criteria that underlie it.

James Purnell: I start by putting the issue in context, because some of what has been said in the debate assumes that since 1997 the basic state pension has been linked to inflation and that pensioners have not had any other increase, or, indeed, that Government do not accept the principle that as the nation’s prosperity rises so the income of pensioners should rise. That is the opposite of the truth. Since 1997 we have not just recognised that principle but legislated on that basis. Pensioners’ incomes, or just their incomes from the state, have gone up broadly in line with earnings or faster than earnings, depending on which measure one uses. That principle has been well established. Under this Government the amount of public spending on pensioners has gone up faster even than GDP as a result of the measures that we have introduced since 1997. There is an increase of 1 per cent. of GDP in the amount going on pensioner benefits. That principle is accepted.
People often also say that it has gone to people on means-tested benefits only because of pension credit. It is of course true that we have prioritised the incomes of the poorest. That is because when we came to power there was a scandalous amount of pensioner poverty in this country, which has been significantly reduced because of the introduction of the pension credit. The poorest third of pensioners in this country are £2,000 a year better off because of what we have done. That is something for which we make no apology, but it was resisted by and large by the Opposition parties.
It is also true that even pensioners who are not on means tested benefits have seen their income from the state go up roughly in line with earnings. The average pensioner is £1,400 a year better off than they would have been under the policies that we inherited in 1997. It is therefore partly as a result of those policies that we can now say that for the first time in a generation pensioners are less likely to be poor than other parts of the population. The general principle that pensioners should share in the rising prosperity of the nation is well established.

David Laws: Can the Minister confirm that over the years between 2007 and 2010-11 there will be a decline in the proportion of GDP going on pensioner benefits?

James Purnell: That is not the case. We have had that debate. The hon. Gentleman tries to quote figures that are not just about pensioner benefits. I am happy to point him yet again to the figures that point to the fact that the amount of pensioner benefits is flat broadly in GDP terms over the period to 2020. That is because of state pension equalisation, so the amount going to pensioners on a like-for-like basis is growing. The hon. Gentleman also assumes that he can write the Budgets for the next few years. Much as I am sure that he would like to write the Labour party’s Budgets over the next few years, it is something that we would resist in principle.
So the general principle that pensioner benefits should be in part shaped by the growing wealth of the country is one that we have accepted all the way through. We have always rejected making a pledge to link the basic state pension to earnings without having a way of doing that for ever and locking that in in legislation. The danger of the Conservatives’ policy at the previous election was that they were saying that they wanted to restore the link but they had no policy for doing so beyond one Parliament. Indeed, during the election their policy for doing so fell apart as first they had to say that they were not going to abolish guarantee credit and they then came under some pressure as to whether they were going to abolish the state second pension. Much as the policy of the hon. Member for Yeovil on citizen’s income does not bear scrutiny, I am not sure that their policy at the last election would have borne the scrutiny that it would have required had they thought that they were going to get into government.

Andrew Selous: The Minister has taken us back down memory lane so fairness dictates that we can reply. To quote briefly from our campaign guide:
“A Policy for the Long Term...We are confident that we will be able to identify the savings that will enable us to carry on this process. Provided these are achieved, successive Conservative Governments will continue the policy”.

James Purnell: Exactly; they did not have a policy but how to fund it. I think he may regret having made—

David Taylor: Order. Would the Minister care to direct his attention to the amendment?

James Purnell: The key point has always been, how could one have a plan that would allow a Government to legislate on this? The hon. Member for Eastbourne tried to say that the link between the basic increase in state pension and the rise in the state pension age was only something that had arrived recently. That is the opposite of the truth. One has always had to answer the question of how one would fund the provision for the long term. One can do so through the Bill because those very two things come together in it, exactly as the Pensions Commission recommended. So, this Bill moves from a situation where pensioners have, in practice, been sharing the growing prosperity of the nation to one where we can legislate for that. We can only do that thanks to the difficult choice in this Bill on the rise in the state pension age.

Nigel Waterson: May I use this opportunity to clarify one confusion on the Minister’s part? He seems to be claiming that my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond) said on Second Reading that the Conservatives believed that the link should be immediately restored—today, tomorrow or whenever. It is worth pointing out that he was responding to a specific intervention by the hon. Member for Dumfries and Galloway on the pledge for the one Parliament point that we have just discussed. I have tried to make it clear that we agree broadly that this package can go forward and that it should be affordable. Our only concern is why the Government are so coy about making an announcement.

James Purnell: That is not actually what Hansard says. It has his colleague, the hon. Member for Runnymede and Weybridge, saying that they believe it is affordable now. If it were to be introduced next year, it would cost about £0.4 billion in 2008, then £0.9 billion in 2009, £1.5 billion in 2010 and £2.3 billion in 2012. Rather as in that Conservative party document, which I will not refer to again, it has no plan for funding that. Until it says that that is not actually its policy, we will continue to scrutinise it.

Nigel Waterson: I have said, am saying and will continue to say that it is not our policy. If that is not good enough for the Minister, then I do not know what is.

James Purnell: I know that you want us to move on, Mr. Taylor, so I will, but what the hon. Gentleman says is a contradiction of what his hon. Friend said on Second Reading.
Amendment No. 32 would do away with the convention whereby increases in relevant pension amounts come into effect from the first Monday in each tax year. It would replace that with a commitment to increase pension amounts from 1 April 2008, regardless of which day of the week that may fall on. To clarify, the tax year begins on 6 April rather than 1 April, so the intended effect might be for increases to take effect from the tax year beginning April 2008. The hon. Member for Yeovil asked me to draw a curtain over the precise implications of the words and the slight “Groundhog Day” nature of the amendment: I am happy to do so. I know that that was not his intention, which is to bring in uprating from 2008. The point about those extra costs remains, and he has still not told us how it is to be funded—whether by a 5p increase in income tax or by abolishing state second pension and the guaranteed credit premium. I am sure that the hon. Gentleman still does not want to answer that question.
Given the importance of earnings uprating as a central plank of our reforms, it may be helpful if I first provide some background on why clause 5 has been drafted this way. It is because we have a clear policy of guaranteeing in the Bill that this will happen in the next Parliament. Our objective is to do that in 2012: we will make a statement on the exact date at the beginning of the next Parliament—exactly as the Bill says.

David Laws: Is the Minister making it absolutely clear, on behalf of the Government, that there is no question whatever of restoring the earnings link before 2012?

James Purnell: I said exactly what I said, which is that our objective is to do it in 2012, and we will make a statement on that at the beginning of the next Parliament. At one point, the hon. Gentleman was saying that the earnings link would never happen—an argument that has been rather undermined by our putting it into legislation. It will happen as a consequence of this Bill and our policy, unlike his, is absolutely clear.
So, clause 5 provides for this to happen and the benefits uprating process relies on activity in two consecutive tax years—the first being the year in which a review of earnings is carried out and the second being that in which earnings increases take effect. Clause 5 provides for that, allowing the first year for review with regard to earnings to be designated, in the words of the clause, and earnings uprating would then take place automatically in subsequent years. Most importantly, it allows for that to happen in time to introduce earnings uprating from 2012. Our proposals fit with these existing arrangements, as we are not looking to change the processes. They are tried and tested and work well every year when we have debates on the uprating process. I am not aware of any complaints about how it is working. That would not be the case, of course, with some of the amendments before us, which would introduce an untested process that we do not think should be supported.
As I have mentioned, earnings uprating is part of an integrated package of reforms. Our plans, including timings, are subject to affordability and sustainability tests, which although not Liberal Democrat tenets, are central to our reforms.

David Laws: Why is the Minister not certain that the proposal will be affordable in 2012, but is certain that it will be in 2015?

James Purnell: If the hon. Gentleman will hold his horses, I shall come on to that later in my speech. I shall try to answer all the questions that he raised.
I shall provide some background: the Pensions Commission proposed that earnings uprating should begin in 2010, as the hon. Gentleman said, although Lord Turner has since confirmed that a short delay beyond that would not seriously undermine the overall direction of his reform. In the hon. Gentleman’s opening remarks, he quoted figures that seemed to imply that the delayed implementation would result in a massive difference between the numbers of pensioners on means testing—between about a quarter, under his plans, and a third under ours.
Actually, we have projected that, as a result of our proposals, about 28 per cent. of pensioners will be on pension credit in 2050. As the hon. Gentleman knows, those projections are statistically ambitious—it is more than 40 years away and the projection is subject to many different factors. We have, therefore, always said that we are aiming for less than a third, rather than pinning ourselves to exact percentages based on very long-term projections. His figure of 26 per cent. and ours of 28 per cent. are not hugely materially different. The material difference will be this: a reduction in the number of pensioners on means testing from 70 per cent. to less than one third.

David Laws: Does the Minister agree that, based on his Department’s figures, some 6 or 7 per cent. more of the pensioner population will be on means testing as a consequence of delaying the restoration of the earnings link from now until 2015?

James Purnell: Our policy is that we will make a statement on exactly when that will happen in 2012. Our central projection is about 28 per cent., but, as I said, it would be inappropriate to pretend that differences of 1 or 2 per cent. in the projections are reliable given that we are projecting to a date that is 40 or more years away. The hon. Gentleman might have a better statistical engine than we do, but we set out quite clearly in our forecasts the reasons why those variations in the statistics need to be taken into account.
So I have dealt with the effect of amendment No. 32. Amendment No. 35 could conceivably bring forward the date by which the order has to be made if, for example, this Parliament were to run for four years, ending in June 2009. That would mean that an order identifying the first review year would have to be made before the first day in April 2010. We doubt whether it will be possible to make legislation based on a start and end date of a Parliament so we thought that the best approach would be to pin it to the existing arrangements on uprating, which is what we have done. That will clearly implement the Government’s overall policy, which I have mentioned already to the hon. Gentleman.
Amendment No. 36 would also remove flexibility and inadvertently the provision to bring into effect the earnings uprating of the pension credit standard minimum guarantee as soon as possible after the Bill receives Royal Assent—in other words, from the tax year beginning in 2008. Similarly, amendments Nos. 76 and 77 would remove flexibility. Like amendment No. 36, amendment No. 77 would remove the link between the commencement of earnings uprating and the dissolution of Parliament. Amendment No.76 then seeks to ensure that the year in which earnings uprating would take effect must begin before 6 April 2013—in other words, no later than the tax year beginning in April 2012.
New clause 19 is at the core of the debate initiated by the hon. Member for Yeovil. His proposal is that, from 2012, for each additional year that the basic state pension is not increased by earnings, the increase in the state pension age should be delayed. I glad that the House has a general consensus on the principle of increases in the state pension age, which is to the credit of the Pensions Commission and the way in which my predecessors ran the national pensions debate. What might have been a very difficult issue for politicians to agree on has been tackled effectively, which is a credit to the way in which the process worked.
The question that the hon. Member for Yeovil asked was whether, if there is a delay in the earnings link, there should also be a delay in the increase in the state pension age. That is to mistake short-term for long-term affordability. The state pension age decision is important because the commitment is long term. We and the Pensions Commission had to come up with a package that was affordable for the long term. On its own, uprating the basic state pension in line with earnings would cost around £56 billion in 2050. That is the main cost in our reform package. By the time that the first increase in the state pension age occurs, from 2024, the basic state pension will already have been linked to earnings for a decade. Increases in the state pension age from 2024 will, by 2050, reduce the cost of our reforms to the state pension system by around £32 billion. That is the bulk of the way in which it is made affordable, and in which it is made fair. By increasing the state pension age gradually, we will be ensuring that the costs of rising longevity are shared fairly between those contributing to and those receiving state pensions.
 A more generous state pension and a rising state pension age, therefore, go hand in hand for the long term. They are part of an integrated package of complementary reforms, so they are of course linked. The crucial point is that they are quite different in nature. People must have absolute certainty about when they will get their state pension, so that they can undertake meaningful planning. It would be irresponsible not to provide this.
Let me confirm our commitment on earnings uprating. I said to the hon. Member for Yeovil earlier that our objective, subject to affordability and the fiscal position, is to introduce the earnings link in 2012 or, at the latest, by the end of the next Parliament. I hope that that gives my hon. Friend the Member for Sheffield, Hillsborough some of the reassurance that she was looking for.
Flexibility around affordability is essential if the package is to stay within the envelope of affordability at the time. Neither the hon. Member for Yeovil nor I know what will be the precise budgetary position in 2012. Framing the decision in terms of affordability at that stage has always been important. The issue of the state pension age is quite different and is about affordability in the long run. We do not think that saying to people, “Here’s a timetable, but it might shift”, is appropriate. People have to know when they are going to retire. That is why we are planning to legislate on that basis for the state pension age. We are clear that we can legislate the linking of the state pension for the next Parliament and we have set out as an objective a year for achieving that. We believe that to be the right approach.

Nigel Waterson: Can the Minister see that people who are being told that, whatever else happens, they are going to have to work longer to get their state pension might see it as unfair that 2015 is not set in stone? If I understand what the Minister was saying, if the promise is unaffordable then, it could be unaffordable later?

James Purnell: No, that is not right. We are legislating to make sure that that comes in during the next Parliament. That is guaranteed by the legislation. The legislation would have to be changed if that were not to be the case. The legislation gives people that guarantee. We set out the objective date of 2012, which is clear in our policy, but it is appropriate that that should be subject to affordability. All policies have to be subject to affordability, which was the Secretary of State’s point in response to the Committee.

David Laws: Could the pledge to restore the earnings link be unaffordable in 2015?

James Purnell: No, we believe that we can do it in the next Parliament, and that is why we are legislating on that basis. We are giving people a legislative guarantee that it will happen in the next Parliament, and our objective, subject to affordability, is to do that in 2012. That is a clear position. It is much clearer than the hon. Gentleman’s policy; it might include a citizen’s pension, but he cannot tell us what it will cost, or how it will be funded, or about the second state pension or premiums in guarantee credit. I hope that the hon. Gentleman will accept that we have set out our position clearly, we have costed it and we are legislating for it.
Let me answer a couple of the points raised. It was claimed that we were bringing forward the increase in state pension age proposed by Turner. That is not the case. The proposal that the Turner commission made was for introduction in the decade up to 2030, the decade up to 2040, and the decade up to 2050. Introduction in 2024, phasing to 2026; in 2034 phasing to 2036; and in 2044 phasing to 2046 is completely compatible with the Turner model—it is in no way a bringing forward of what was proposed. I hope that that answers all the points that have been made, and I would urge the hon. Member for Yeovil to withdraw what I think are probing amendments. However, if he does not, I would ask my colleagues to resist them.

David Laws: We have had a relatively good, if somewhat subdued, debate. I was expecting more fireworks, but perhaps it is too early in the morning for that, or perhaps hon. Members, including those on the Government Benches, understand that there is genuine disappointment among the existing pensioner population that they will have to wait so long for the restoration of the earnings link. It might be that hon. Members are also concerned about what those delays will do in relation to the amount of means testing and the incentive structures that people face.
The Government have some logical hurdles to clear—if one can do such a thing. The Minister set out the merits of two completely contrasting and perhaps incompatible principles. One appeared to be certainty, which apparently people welcome in relation to bad news such as the increase in the state pension age. The other is the principle of flexibility, which apparently people welcome in relation to things that are good news, which they would not want introduced too quickly in case that were imprudent.

James Purnell: I obviously failed to explain this point in my speech, so I shall try in an intervention. Does the hon. Gentleman recognise that delaying the increase in state pension age in 2024 would make no difference to affordability in 2012?

David Laws: What I recognise is that the Government have said that the restoration of the earnings link is really an issue for the longer-term costs, even more than for the short-term costs, and that therefore the two things must be inextricably linked. I am saying that pensioners ask me how they can be inextricably linked when they are told with great certainty that they are going to have to work for longer even though they do not know for sure when the earnings link will be restored.

James Purnell: By definition those pensioners will not have to work for longer because they are already retired. Future generations will have to work longer.

David Laws: That certainly is the case. All of the population share the concerns, but it is the pensioners who feel short-changed by a package that does nothing for them. No doubt they have read in detail the paper that was issued alongside the Bill. The regulatory impact assessment gives all the figures; they are very detailed and superbly prepared by the Department and its officials, whom I congratulate on the clarity of the document. In that very clear document, it is very clear that total pensioner benefits as a share of gross domestic product will fall between 2008 and 2011. Indeed, in the period from 2011 to 2020 there will be a lower share of pensioner benefits, including pensions, in GDP than there is today. That explains why there is such a lack of comfort.
I have still not heard a satisfactory explanation of why the restoration of the earnings link is going to be affordable without any shadow of doubt in 2015. This is a definition of uncertainty which baffled the Select Committee and which baffled me. This all begs the question why the Government have made this decision. Is it because the Chancellor of the Exchequer is still not very happy with this policy or that he was bullied into it? Will he change his mind later? Will he attempt to short-change pensioners in some way? Or is it the opposite of this? Does the Chancellor of the Exchequer want to make this announcement of good news himself? Does he want the flexibility, perhaps even within months of becoming Prime Minister, if he does become so, to make this grand announcement?
 When I asked the Minister whether he was absolutely sure and could give me a guarantee that the Government were committed to not introducing the earnings link before 2012, I thought I detected a little bit of wriggling. The Minister knows that it is quite possible that the Chancellor will suddenly decide that this is immensely popular and that, if he is going to get all the credit for it, the measure may suddenly be brought forward. Then the Minister and all his honourable Friends will say how marvellous it is and what genius this man has and how wonderful the Labour Government are and tell us all that we should be grateful for it.
We know that positions can change. We know sometimes that even the Minister has not been updated on the latest policy thinking of his Department. He told us last week that the Government did not have it in their mind to change the basis on which lone-parent benefits were available and we wake up this morning to discover that that is back in the melting pot. How confident can we be, therefore, that the Government really have a clear policy on the 2012 date? Maybe we should all be optimistic and actually think that this deliberate uncertainty—or flexibility, as the Minister described it—is actually designed for the Chancellor of the Exchequer.
On the final point, the Minister said that there was a great deal of uncertainty about means testing and that we should not rely too much on the estimates that I cited earlier about the consequences of delaying the earnings link for the number of people on means testing. I pointed out to him that all I did was to quote the figures that are available in the notes supplied to the Select Committee from his own Department. All members of the Committee have the very highest view of the effectiveness and ability of his officials to make these detailed calculations. That is why we take seriously the fact that they have indicated that there could be a gap of 5 or 6 per cent in the number of people on means testing, based on a potential delay in the earnings link.

James Purnell: I have great respect for the hon. Gentleman and I would not want him to take what I said out of context. What I was saying was that single percentage figure differences in 2050 should be treated with the caution as set out in the paper that we published on this issue. If one is projecting 40 years away, that is well within the margin of error. What I said in my intervention was that the forecast that we have for the means-tested population in 2050 is 28 per cent. The figure that the hon. Gentleman got for introduction in 2008 was 26 per cent. That was the only point that I made.

David Laws: I do not want to labour this, but the 28 per cent. that the Minister cited is precisely the amount that appears in the memorandum, based on the dates that the Government envisage introducing this policy. Surely I am correct to say that the earlier the link is restored, and the higher the basic state pension, the more reasonable it is to assume that the number of people on means-testing will be lower.
I accept that the proportion of people on means-testing in 30 or 40 years’ time is very uncertain and, as the Minister knows, we have had plenty of debates in which we have aired the issue of uncertainty about the total level. Surely he would accept, however, that, whatever the central estimate for 2050, it stands to reason that the earlier the earnings link is restored, the lower the proportion of people who will be on means-testing. Whatever that estimate is at the current time, it must surely be less the earlier the earnings link is restored, and that is a fundamental part of the Government’s policy.

James Purnell: Of course that is right but that is only a theoretical point until the hon. Gentleman tells us how he would fund such a policy—whether the 5p increase in pension spending or the abolition of S2P in the guaranteed credit premium.

David Laws: Without going too far astray of my amendments, we will certainly set out before the next general election very clear and costed plans which will not require increases in taxation but will demonstrate how we will reduce existing areas of Government expenditure in order to deliver on our policies on the earnings link and the citizens pension. I detect that that is probably as far as you want me to go, Mr. Taylor, but I look forward to the Minister attending my seminar in the same way as I look forward to attending his—neither of which has a date yet.
The one area where we have made some progress in clarifying the Government’s thinking is that the Minister did not appear to have an objection to the suggestion that an announcement on the restoration of the earnings link should be made at the beginning of the next Parliament, whenever it comes. I think his objection to our amendments on that point was not so much that they were objectionable on principle, but simply that he could not see how the Bill could be amended to make that point. If he is willing to confirm that the earnings link announcement will be made in the first year of the next Parliament, however early that is, that would be extremely reassuring. I note that he is not looking at me so perhaps I am being excessively optimistic. He may want to write to me to give me that warm assurance in the event that the Chancellor rushes to the polls after the Brown bounce.
We have had a useful airing of some of those issues. As the Minister anticipated, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment proposed: No. 4, in clause 5, page 6, line 13, leave out from ‘shall’ to end of line 14 and insert
‘determine the general level of earnings as set out in subsections (8A) and (8B).
(8A) If the average earnings index (including bonuses) for the whole economy for September in any year is higher than the index for the previous September, the Secretary of State shall as soon as practicable make an order in relation to each sum mentioned in subsection (1), increasing each sum, if the new index is higher, by the same percentage as the amount of the increase of the index.
(8B) In making the calculation required by subsection (8A), the Secretary of State shall, in the case of the sums set out in subsections (1)(a) to (1)(d) inclusive, round up the result to the nearest 10 pence.’.—[Mr. Waterson.]

Question put, That the amendment be made:—

The Committee divided: Ayes 6, Noes 9.

Question accordingly negatived.

Amendment proposed: No. 78, in clause 5, page 7, line 3, at end insert—
‘(6A) The Secretary if State must, on or before 5th April 2009, announce his decision as to the date from which he will implement the provision set out in this section.’.—[Mr. Waterson.]

Question proposed, That the amendment be made:—

The Committee divided: Ayes 6, Noes 9.

Question accordingly negatived.
 The Chairman, being of the opinion that the principle of the clause and any matters arising thereon had been adequately discussed in the course of debate on the amendments proposed thereto, forthwith put the Question, pursuant to Standing Orders Nos. 68 and 89, That the clause stand part of the Bill.

Question agreed to.

Clause 5 ordered to stand part of the Bill.

Clause 6

Preservation of link with prices in case of other benefits

Question proposed, That the clause stand part of the Bill.

Nigel Waterson: I am sure that the Committee will be delighted to hear that I shall be very brief in discussing this clause. Compared with its predecessor, clause 6 is a relatively inoffensive clause; it has certainly not attracted an awful lot of comment from outside bodies. However, I wanted to raise a couple of issues before we move on.
Clause 6, along with its various related consequential amendments, is designed to ensure that, for some benefits, the preservation of the link with prices rather than earnings will continue, but some benefits will be linked with the basic state pension as and when it comes to be linked with earnings—we do not want to go back over the issue of when that day will dawn. One example of the second category of benefits is bereavement benefit.
I am asking the Minister to address two issues in his comments. First, I should like him to explain the reasoning behind the distinction between the two groups of benefits. I assume that the reason for the groupings is financial. I should be grateful if he would indicate the kind of saving that is expected by making this distinction between the two groups of benefits: those that will be clinging to the coat tails of the basic state pension, in terms of uprating with earnings in due course; and those that will continue, for ever and ever, to be linked to the level of prices. That is all I have to say.

James Plaskitt: You will recall, Mr. Taylor, that in our discussion of clause 5 we provided for the earnings uprating of the basic state pension, the standard minimum guarantee in state pension credit and industrial death benefit. Clause 6 completes the picture. It amends section 150 of the Social Security Administration Act 1992, which provides for price uprating. Essentially, clause 6 removes references to the benefits that will now be uprated in line with earnings, while preserving the existing position for other benefits. I think that the answer to the second question by the hon. Member for Eastbourne is that this process is about maintaining the status quo; it is not about delivering any savings in expenditure.
The changes that relate to the basic state pension, industrial death benefit and bereavement benefits have effect in relation to the designated tax year. The changes that relate to the standard minimum guarantee have effect in relation to the year in which the Act was passed.
Historically, the rate of certain bereavement benefits has been linked by legislation to the rate of the basic state pension, and consequently they have been uprated in line with that. As I explained before, clause 5 maintains that link in the case of industrial death benefit, because most people receiving that benefit are over state pension age—I think that is the answer to the first question by the hon. Member for Eastbourne.
However, other bereavement benefits—widowed mother’s allowance, widow’s pension, widowed parent’s allowance and bereavement allowance—are paid to people during their working lives, when people have needs and responsibilities that are different from those of pensioners. If we did nothing, those bereavement benefits, which at the moment are uprated in line with prices, would instead increase in line with earnings, as a consequence of the earnings uprating of the basic state pension.
Our policy commitment was to uprate the basic state pension and the pension credit standard minimum guarantee by earnings. Working-age benefits will remain linked to prices, as they are now. So I repeat to the hon. Member for Eastbourne that the clause maintains the status quo.
The clause breaks the link between the rate of the basic state pension and those working-age bereavement benefits, so that those benefits will continue to be increased by prices, as they are now, in line with other working-age benefits.
Sections 39 and 39C of the Social Security Contributions and Benefits Act 1992 provide the legislative links between the rate of the basic state pension and bereavement benefits. Clause 5(5) and (6) amend those sections, the effect of which would be to remove the links to the rate of the basic state pension.
Given that there is, at present, no legislative mechanism to determine the separate rates of these benefits, the Bill gives the Secretary of State powers to make regulations that prescribe new rates for these bereavement benefits before the basic state pension starts to be uprated by earnings. Clause 5(9) will ensure that the prescribed rate of bereavement benefits will be the same as the basic state pension until that is uprated in line with earnings. After that, the new prescribed rates of bereavement benefit will be uprated by prices via section 150 of the Social Security Administration Act 1992. For those reasons, I hope that the Committee will agree to the clause standing part of the Bill.

Question put and agreed to.

Clause 6 ordered to stand part of the Bill.

Clause 7

Removal of link between lower earnings limit and basic pension

Question proposed, That the clause stand part of the Bill.

David Taylor: With this it will be convenient to discuss the following:
Clause 8 stand part.
New clause 18—Lower earnings limit—
‘(1) Section 5 (earnings limits) of the SSCBA is amended as follows.
(2) After subsection (2) insert—
“(2A) A person’s gross earnings from all sources shall be aggregated when determining whether an individual is above the lower earnings limit.”.’.

Andrew Selous: I, too, welcome you to the Chair, Mr. Taylor.
Clause 7 removes the link between the lower earnings limit and the basic pension. The lower earnings limit is £84 a week at present, which equates to an annual qualifying earnings factor, as pension legislation calls it, of £4,368. The effect of the clause will be that the lower earnings limit will not automatically increase in line with earnings in the future. Instead, any future increase in the lower earnings limit will be at the Treasury’s discretion; that will happen when the basic state pension is linked to earnings.
I have huge sympathy with the intent of new clause 18, which identifies an issue that was raised on Second Reading by at least three Labour Members—the hon. Members for Colne Valley (Kali Mountford), for Amber Valley (Judy Mallaber) and for Northampton, North, and I understand precisely what it would do. It deals with people who have several part-time jobs, each of which on its own is below the lower earnings limit on which national insurance contributions have to be paid in order to accrue a pension at a later date. However, when those jobs are taken together, the total gross earnings come above the lower earnings limit.
To put some flesh on the bones, typically—though not exclusively—it tends to be women who are in those circumstances. The hon. Member for Amber Valley gave the example on Second Reading of someone who may work as a dinner lady at lunchtime and in a corner shop in the evening.
A helpful briefing provided by Help the Aged estimated that about 600,000 women are not accruing pension rights because their earnings are below the lower earnings limit. About 50,000 of those women have more than one job, so they could benefit from the proposal.
Although I said that I understand the purpose behind the new clause, and have much sympathy with it, I have a question about its practical impact. On Second Reading, responding to an intervention by the hon. Member for Colne Valley, the Secretary of State said that it would be
“extremely difficult from an administrative point of view.”—[Official Report, 16 January 2007; Vol. 455, c. 662.]
My question is how new clause 18 would work practically with the payrolls run by employers on a computer, or manually if they are smaller employers. There is also the issue of the cost to employers if an employee for whom they do not pay employer’s contributions goes above the primary threshold, which is £97 a week, at which point the employer has to pay 12.8 per cent. Employer’s national insurance contributions, and the employee has to pay 11 per cent. One could imagine a situation in which some women would be priced out of a job, as employers might choose not to offer them work because of the cost.
Will the Minister comment on how class 3 voluntary national insurance contributions could be paid by employees who are in work and earning below the lower earnings limit, to enable them to accrue rights towards the basic state pension? Class 3 contributions can be paid by anyone over the age of 16 to enable them to qualify for the basic state pension. The rate is currently £7.55 a week. As the employees concerned would not be paying contributions otherwise, it would not be an additional payment. If that would be the right way to go, how can the Government bring the option of paying class 3 contributions to a wider audience?
I am not asking the Department to spend more on its promotional material, but it could flag up the option of paying class 3 contributions in the advertising that it already puts out. In the course of communications between employers and employees, such as payslips or P60s, it would be possible to alert everyone who earns below the lower earnings limit to that option. I should be grateful if the Minister would comment on that suggestion. I know that he understands the problem that is addressed by proposed new clause 18.

David Laws: We have no fundamental disagreement with clauses 7 or 8. Proposed new clause 18 is in my name and that of my hon. Friend the Member for Solihull. She was one of the hon. Members to raise this issue on Second Reading, along with a number of Labour Members, notably the hon. Member for Colne Valley, who made a detailed speech and feels passionately about it. The hon. Member for Dumfries and Galloway also made an intervention during the debate.
 The issue relates to how the Government, within the confines of their own approach to pensions entitlement, will include some of the groups that have been left out in the past. The hon. Member for South-West Bedfordshire set out in a detailed, fair way the nature of the problem and some potential impediments to possible solutions.
The proposed new clause is designed to help people with earnings from multiple sources who do not earn at least the lower earnings limit in any one job and therefore end up without a full entitlement to the basic state pension. The inclusion of more individuals in the scope of the basic state pension has been an important part of the Government’s approach. It is an important part of the Bill, which we have already discussed to some extent.
In its second report, the Pensions Commission drew attention to the fact that many female pensioners suffer from problems of the type that we are discussing. The report argued that the need to include those individuals and the practical difficulties of doing so made a strong case for replacing the existing contributory system with a universal pension that would be payable to all who meet a residency test. It pointed out that within the confines of the existing system, it is difficult to fix the problem of individuals who have multiple jobs that are all below the earnings limit.
The magnitude of this problem is set out in the Department for Work and Pensions 2005 report on women and pensions. The report describes how at that time approximately 2.2 million women were not accruing an entitlement to a full working state pension, and of those about 600,000 were earning less than the lower earnings limit, which was at that time £82 a week. Fifty thousand of those individuals are people whom the Government believe to have more than one job and therefore people who would be affected by this new clause, which has good support not only in this place but from a number of bodies outside parliament, including Help the Aged, Age Concern and the Equal Opportunity Commission.

Andrew Selous: I thank the hon. Gentleman for his kind words about my introductory remarks. He has mentioned outside bodies to which he has spoken. May I ask him specifically to deal with the issues regarding employers and the practicalities of how we make this work within a payroll system? Employers have raised these issues with me. There is also the issue of cost for employers; before we blithely add costs, we need to look at that aspect as well.

David Laws: The hon. Gentleman correctly draws attention to the practicalities of what we are seeking to do and of what was raised on Second Reading, and also the potential costs that could fall to employers. We are not unconcerned about those matters at all. Without going too wide of this particular debate, that is one of the reasons why we favour a pension system based on residency rather than on accruals, because it can be difficult and expensive to fix some of these problems. We know that the Government do not want to go down that route. They have said that their fundamental objection is not one of practicality but one of principle. But they believe it is right for people to receive state pensions in return for making economic or social contributions during their working lives.
We believe that the Government’s attempts to ensure that the uptake of the full basic state pension is increased to include as many groups as possible implies that they have an end aspiration to ensure that as many people as possible get the full basic state pension. We would prefer to enforce the responsibilities on people to seek employment and not simply rely on the benefits system in other ways. We know that the Secretary of State has made some proposals on this to date in relation to lone parents. We accept that there are some responsibilities within the benefits system. We have not seen any evidence to date, unless the Minister can contradict me, that the motivation of people of working age in relation to employment, caring and so on is greatly affected by the issue of national insurance contributions. Of course, the fact that the Government have a means-tested level of pension that is set above the level of the basic state pension, to some extent cuts against their desire to have a contributory principle telling people that they are not going to get something for nothing.
In some ways my answer to the hon. Member for South-West Bedfordshire is that that is precisely why we are concerned about the contributory principle that he and the Government have stuck with and why we would like to see a residency principle. We believe that the problem is that the Government will take increasing steps to try and include as many groups as possible when some sort of universal residency-based pension would be more sensible.
The hon. Gentleman rightly explains some of the difficulties that may face the Government in having records that ensure that they can identify these 50,000 people. He also rightly identifies the problems that employers might experience if they have to bear the costs. I believe that that was behind the comments made by the Secretary of State on Second Reading when the hon. Member for Colne Valley made her speech. I should be interested to hear how the Government intend to fix these problems. It would be bizarre for me to suggest that we should have a residency-based pension system with these difficulties, but then propose a series of detailed and thought-out amendments to deal with problems of the Government’s own making.
First of all today I would like the Government to accept as a real concern that some hard-working people on low pay are potentially not going to get a basic state pension. I do not think that any of us would want them to be left out. Then I would like to hear how the Government might deal with the potential anomaly in a practical way that would not impose unsatisfactory burdens on employers. That is what I am hoping to hear from the Minister. If he encourages us to think that the Government will bring forward measures to fix this, then there will be no need to press any of the amendments to a vote.

Lorely Burt: I wanted to add a few remarks to those of my hon. Friend and to remark further on the interesting and valuable comments by the hon. Member for South-West Bedfordshire. When I first submitted my amendment, I was thinking that a simple and fair solution would be to widen the eligibility for pension contributions where people have more than one job but none on its own qualifies towards national insurance contributions. The simplicity has been taken out by the practical implications; I will come to that in a moment. However, I am sure that no hon. Member would deny that, if possible, in a spirit of fairness, it is desirable to aggregate those people’s jobs, so that the poorest, who need their basic state pension the most in retirement, can hopefully be pushed over the lower earnings limit and therefore be able to make some sort of national insurance contribution.
On Second Reading, several hon. Members gave practical examples of the sort of person who would be affected. A disproportionate number of the people who would benefit from the application of the new clause would clearly be women. One might be a woman who does several jobs to fit around a caring role. Perhaps she is a dinner supervisor at lunchtime and a bar steward in the evening. She is putting caring first. She is literally working all hours. She deserves that the money she is earning, the fruits of her labours, should count towards eligibility for her pension.
 The hon. Member for South-West Bedfordshire discussed the practical implications. I completely understand his concerns. I thought that his suggestion about class 3 voluntary national insurance contributions might be one way of tackling the matter. If someone has two jobs, would it be beyond the wit of Her Majesty’s Revenue and Customs to facilitate pro rata contributions? Could this be one instance where the computer says yes? If HMRC can work out complex formulae and contribution costs, implementing some form of pro rata system would be possible. That is what I would hope. The Government are committed to widening the circle of people who can earn credits towards their pensions. I hope that the Minister will look at the new clause and see whether the gurus in HMRC could find a way for the computer to say yes on this occasion.

James Purnell: I seek your guidance, Mr. Taylor. Do you want to take clause stand part as part of the amendments?

David Taylor: Yes.

James Purnell: I start by putting the amendment in its proper context. Our previous debate was about how clause 5 provides for the earnings rate uprating of the basic state pension, and if no other action were taken a consequence of the basic state pension being uprated in line with earnings would be that the lower earnings limit would also automatically increase by the same amount. Clauses 7 and 8 are therefore needed to prevent that from happening automatically. I take it from the speeches by the Opposition Front-Bench spokesmen that they agree that that needs to be corrected.
It may be helpful briefly to explain the lower earnings limit and why we would wish to prevent it from automatically increasing in line with earnings. The lower earnings limit, currently £84 a week, is the earnings point at which employees start to build up entitlement to contributory working-age and pension benefits. Another way of looking at the lower earnings limit is to think of it as the benefit entry point.
National insurance contributions do not become payable until an individual has earnings at or above the primary threshold, currently £97 a week. People with earnings at or above the lower earnings limit but below the primary threshold are treated as though they have paid national insurance contributions. At the moment, the lower earnings limit increases in line with prices because it is linked by legislation to the weekly rate of the basic state pension. If hon. Members are interested, that is through section 5 of the Social Security Contributions and Benefits Act 1992.

Sally Keeble: Will my hon. Friend repeat the passage where he said that people who earn below the lower earnings level are treated as if they have already paid their national insurance contributions, because I did not get the exact wording? Is that right? Is that what he said?

James Purnell: That is between the lower earnings limit, which is £84, and the primary threshold, which is currently £97.

Sally Keeble: And they are treated as having paid?

James Purnell: Yes. Once the basic state pension has increased by earnings, as I have said the lower earnings limit would also rise in line with earnings. We do not believe that the lower earnings limit should  automatically increase with earnings simply as a knock-on effect of the changes to the basic state pension that we are making. For that reason, clause 7 breaks the legislative link in the Social Security Contributions and Benefits Act 1992 and that is the main purpose of the clause. The LEL is prescribed by regulation 10 of the 2001 contributions regulations and is amended annually by the Treasury. Regulations made annually by the Treasury through the setting of the LEL are subject to negative procedures in this House. Clause 8 makes corresponding amendments in the Social Security Contributions and Benefits (Northern Ireland) Act 1992 as it is just an equivalent change for Northern Ireland.
I turn to the amendments before us. I am happy to give the hon. Member for South-West Bedfordshire the assurance that he wanted, which is that of course people can make voluntary contributions if they are earning below the LEL. They can make class 3 contributions. People in that category who are not getting NI credits in other ways would get deficiency notices from HMRC which would alert them to the fact that they had a deficient year and the possibility of paying national insurance contributions. We are always open to suggestions on how that could be more widely publicised, although obviously with the caveat that we would not want to increase burdens on employers in an unjustifiable way.

Andrew Selous: I am grateful to the Minister for that reassurance, but will he take that point back to the Department? Given that according to Help the Aged there are at least 50,000 women who should be paying national insurance if we look at their gross earnings, we need to be more imaginative and do a bit more, and it would be possible in terms of existing communications not only from the Department but also those communications that employers already send their employees—such as a payslip and a P60. Will he ask his officials to look further at the matter to see what more could be done?

James Purnell: I would have a worry about a commitment to place such a burden on employers. We are talking substantially about people who may have a limited payroll system or personnel department. My instinct is that the right approach is through the deficiency notices. I am happy to set out to the hon. Gentleman how that and everything else is being done and to show him the exact letters, if that would be helpful.
 Andrew Selous indicated assent.

James Purnell: The hon. Gentleman indicates that it would, so I shall happily do that.
I am grateful to the hon. Member for Yeovil for raising this issue because it is important that we debate it. He is right to say that our overall goal should be to give people contributing, through work or care responsibilities, the ability to build up state pension entitlements. However, there is a difference of principle between our approaches: we believe that certain contributions should be recognised, but that others should not. For example—this is an extreme—we do not think that people in prison have the same right to build up contributions to their basic state pension as someone caring for children or making class 1 NICs.
The hon. Gentleman might have a different point of view. It is worth noting also that his policy is not for a universal residents pension because that would imply that anyone in the country over the state pension age would get the same pension, which would create the illusion that one could get rid of any kind of means-testing. I think he knows that doing so would create difficult political problems owing to the sorts of people who would be getting a full basic state pension. His policy, therefore, is for a person to build up a year’s contribution for every year that they are resident in the UK, which would not be universal.

David Laws: Returning to his prison example, will the Minister clarify whether somebody in prison for a period of their working life will still be entitled to the Government’s minimum means-tested level of benefits above the basic pension?

James Purnell: The two are different. One is a poverty alleviation measure and the other the contributory principle by which people build up their state pension. So, as always, the hon. Gentleman has not quite answered my questions about the details of his policy. I suspect that that is because he does not actually know the answers, or because they are so unpalatable that he wants to delay setting them out for as long as possible. However, the Committee has a few more days to go and we may get more satisfaction before the end of our deliberations.
The hon. Gentleman and other speakers today are right to say that this is an issue mainly about women. The family resources survey estimates that fewer than 50,000 women have two or more jobs that individually pay less than the lower earnings limit, but pay more together. As has been kindly recognised, many of the measures in the Bill are driven by the desire to recognise caring contributions more effectively than we do at the moment. In fact, the core measure—the shift to a 30-year contribution limit to the basic state pension—will largely address the problem that we are discussing today. A minority of women might find themselves in that situation for a period of their lives, but the reduction in the requirement to 30 years should largely deal with it.
It is worth saying also that people with earnings below the lower earnings limit do not necessarily fall through the system. Even though they might not be contributing through their work, they might qualify for home responsibilities protection, through child benefit, under our changes to the weekly credits, or through national insurance credits—for example, the carer’s allowance. The hon. Member for Solihull gave the example of women eligible for carer’s credit or receiving child benefit who, therefore, would be building up an entitlement. They could also build it up through working tax credits or, indeed, maternity pay.
So, as a consequence of the Bill, we will improve the flexibility of those credits and reduce the number of years required. Taken together, those two measures will largely address the problems identified in the amendments.

David Laws: The Minister might be coming to this, but is his objection to the new clause one of principle or simply practicalities?

James Purnell: I am coming to that. It is indeed the practicalities. Given the practical difficulties and given that the other significant measures in the Bill may, in large part, address the question that the hon. Gentleman is raising through his amendment, the great practical difficulties of doing this may not be justified by the benefit that would be achieved.
Indeed, the Pensions Commission looked at this issue and it said clearly in its second report that requiring employers to record and pass on details of earnings below the lower earnings level, so that they could then be aggregated, would significantly increase costs for employers. In that, as in most of this Bill, we concur with what the Pensions Commission said. The Government have also looked carefully at aggregation, but I am afraid that there is no straightforward mechanism to allow earnings from multiple employers to be aggregated in a way that would not impose excessive additional administrative burdens and costs on business.
One of the key principles of national insurance for people in employment is that both the employee and their employer should contribute towards benefit entitlement. If the employee alone were to contribute then the amount of payment needed might be prohibitive. The employer contribution helps fund entitlement benefits in both the shorter and longer terms. And it is because of this employer’s secondary contribution that the system is able to work overall. Unfortunately, that would be very difficult to do if earnings were to be aggregated in this way.
If earnings were aggregated, it is not immediately obvious how the employer’s contribution could be easily calculated. The employer’s contribution would be variable: it would be a percentage based on an employee’s earnings in their work compared with their earnings with another employer. Collecting and calculating it would impose significant administrative burdens on employers. Indeed, the percentage required might change from month to month and even week to week. It might also make the cost of hiring someone uncertain. The employer would not necessarily know about other jobs that the individual might have, and therefore whether they would need to pay some employer’s national insurance contributions.
We cannot have a system to aggregate earnings for benefit purposes but exempt people from paying national insurance contributions on those aggregated earnings. That would clearly be unfair. Let me give the Committee an example. If a person has two jobs, each for 10 hours a week at the national minimum wage, the total weekly earnings would be £107. But national insurance contributions would not be payable, either by the employee or the employer. Another person working the same hours at the same wages for one employer would pay national insurance contributions of £1.10 a week and receive pension entitlement. The employer would pay £1.28 a week. It would clearly be unfair to have a situation where the person in the first category was given pension entitlement but did not pay those contributions if someone who was earning the same amount through one job did.

David Laws: I quite understand the Minister’s point. Could he recap on those figures? What would be the excess of national insurance contributions paid by the fully employed individual in a year versus his example of the individual who was in two jobs, which was a times 52 multiplication of the figures he used? I should just like to be clear about how big an injustice we are talking about.

James Purnell: I think we are talking about £58 a week. I hope that I have avoided my Dan Quayle moment. That may not sound like a significant amount of money to the hon. Gentleman, but the fact that one person would pay tax on a level of earnings and receive pension entitlement and the other person would get the pension entitlement but not pay the tax would clearly derail this proposal. That is in addition to all the burdens on employers.

Lorely Burt: I start by apologising for my lack of expertise in this area. It is not my field. Is the Minister saying that it would not be possible for the first person in the example, who had the two part-time jobs, to pay pro rata national insurance contributions, and that HMRC could not advise the two employers of their requirement to pay pro rata national insurance contributions? Would that not increase revenue to the Government, enabling them to pay a basic state pension in the fair way that they seek to achieve?

James Purnell: I do not think that that would be possible. We are talking about an end of the labour market at which people might not have absolute clarity about what they pay; their payments might shift from week to week due to flexible working patterns. Indeed, their employers might not have terribly sophisticated pay-as-you-earn systems. It is worth saying that the effect of burdens on employers at that end of the market could be disproportionate. Given that we are talking about people who are not paid significant amounts of money, even a relatively small burden on employers could have a significant effect on employment patterns. At that end of the market, the key thing is to enable people to get back into work so that they can progress to more hours and higher earnings if necessary.

Lorely Burt: I totally understand; and I agree about the disproportionate effect on small employers. The Liberal Democrats’ policy on national insurance and employee-related payments is that in the case of small businesses the employer should not bear the burden. How would the Government feel about extending the measure to lift the burden completely from small employers?

James Purnell: Well, this is a new version of the money tree—not just increasing spending but reducing the amount of taxation that is received to pay for it in the first place. I shall be happy to look at the hon. Lady’s detailed proposal when the Liberal Democrats have decided exactly how they will fund that. However, I do not want to tax your patience, Mr. Taylor, by straying too far beyond the amendment.
There are, of course, people in that category who choose to work in that way. There might well be people who, for whatever reason, want jobs that are individually below the LEL. They might choose to do so or they might not—

Andrew Selous: I am intrigued as to why somebody would want to stay below the LEL. It is not something that I have thought about.

James Purnell: Without wanting to be too blunt about it: so as not to have to pay national insurance. It might be that people do not choose to do that but that they have to, in order to look after children or somebody who is sick or because it is a temporary part of their work pattern. That is not a pattern that is common throughout a person’s working life; it appears to be something temporary. As I said at the outset, our reforms, particularly the reduction to 30 years for carers’ credits, will benefit many people in that situation. I see that the hon. Member for Yeovil is still doing long division. I am starting to worry that he is about to intervene on me.
We accept that other, more difficult, circumstances might result in people not getting a full basic state pension. It is right that we should seek to understand who will retire without a full basic state pension and what circumstances have led to that situation. That is the matter on which I think the hon. Gentleman was asking us to do more research. I am happy to give him a commitment to do so. We are undertaking research to establish more about those who do not qualify for the full basic state pension. We are also going further, and including those who will retire in 2025 without a full basic state pension. We hope to publish the results of that research in summer 2007. Perhaps, at the same time, the hon. Member for Yeovil would like to publish his proposals as to how he will fund his universal residential citizens pension at the unknown level—

David Laws: I missed the precise detail of what the Minister was suggesting, for which I apologise. Was it that he is going to do research on all categories of people not getting the basic state pension, or does he hold out a small prospect of seeking a solution to this particular problem? I am looking for him to clarify whether he thinks that will ever be soluble within the existing system.

James Purnell: The hon. Gentleman was obviously looking for a calculator when I was making my key commitment to address his concern. Our research is to look at people who would not be eligible for a full state pension, both in 2025 and 2050. It is too early to say whether this is a key contributor to that, or whether it is addressed through other means—for example, people’s eligibility through child benefit or the carer’s credit, or because of the 30-year rule. The key point is to look at the 5 to 10 per cent of men and women who might not get a full state pension in 2025, and whether that reflects the contributory principle appropriately or is an unintended consequence of our policy. That is the research that we are committing to publish in summer 2007.
 I hope that that gives the hon. Gentleman the assurance that he wants. I have tried to set out the thinking here. The Bill intends to widen coverage for people in this category and its main provisions, which we have debated elsewhere, are the effective way of doing so. A significant burden, in both administrative and, potentially, national insurance terms would outweigh the advantage that would come from this provision.

David Laws: I want to respond briefly to the Minister. I am grateful for his detailed explanation. It is useful that he has acknowledged that the Government fundamentally want this group of people to be included in the basic state pension system, and that the issue is entirely one of practicality rather than principle. I also accept his point that the 50,000 figure is likely to reduce over time, because of other changes by the Government. I do not know how significantly that 50,000 will reduce, or whether the Department has made any estimate of that in relation to other changes. I assume that it might be quite tricky to do so, as a lot of assumptions would have to be made, but it would be useful if the Minister would let Members of the Committee know in writing whether there is, perhaps, an order of magnitude by which the 50,000 problem is to be reduced.
The Minister has, essentially, set down a challenge to those who are interested in this issue—including ourselves and others outside this place—to table a detailed additional amendment, perhaps at another stage in our proceedings, demonstrating that the aspiration here might be practical. Clearly, that could be designed to deliver the inclusion of these individuals within the existing system, by tweaking the records of national insurance contributions that they are making, or by seeking to advantage those individuals, who will be on very low incomes, regarding those contributions that they do or do not have to pay.
I appreciate that the Government do not want to create an incentive for people to give up their full-time jobs and acquire a number of different part-time jobs. Sometimes, legislation creating such anomalies can result in people changing their behaviour in an undesirable way. However, on the face of it I should not have thought that there were huge numbers of people who are, as in the exchange between the Minister and the hon. Member for South-West Bedfordshire, structuring their work arrangements around some desire to avoid the lower earnings limit. After all, the amount of national insurance contributions that they pay will be pretty small. It is far more likely that they will acquire these jobs because only part-time jobs are available or because—as my hon. Friend the Member for Solihull indicated—they are trying to fit around other caring responsibilities.
I was trying to do some calculations, as the Minister spotted, on his £52 and 52 weeks, and everything else. I may have got it all wrong, as I am not always right on such things, but his estimate of the cost differential of £52 per week between the individual on low pay in full-time employment versus the individual who splits their job into two jobs and gets underneath the LEL, sounded to me very large. Fifty pounds per week—£2,500 per year—sounds like a large contribution for somebody on a very low income.

James Purnell: Per year.

David Laws: The Minister suggested when he responded that the differential would be £50 per week, but he is now saying that it would be £50 per year. That is not a particularly large sum of money. It is not a particularly large incentive to structure one’s behaviour in a different way. That has left some of us with some ideas—some problems, perhaps—about how to deal with this particular anomaly. The Minister has invited  us to consider whether there is anything that would be workable and practical that we could do and, if there is, to bring it back at other stages in our proceedings.
With that in mind, I will not press the new clause.

Question put and agreed to.

Clause 7 ordered to stand part of the Bill.

Clause 8 ordered to stand part of the Bill.

Clause 9

Additional pension: deemed earnings factors

James Purnell: I beg to move amendment No. 88, in clause 9, page 9, line 17, leave out ‘and section 44C below’.

David Taylor: With this it will be convenient to discuss clause stand part.

James Purnell: We now enter the delightfully complex area of the state second pension, which we hope to make simpler by means of the Bill. Committee members will know that, since the state second pension was introduced in 2002, certain groups have been deemed to be earning at the low earnings threshold, which is currently around £12,500 per year. Some of the groups that have been deemed to be included are carers and low earners and, as a result, they accrue additional pension and have double the state earnings-related pension scheme rate, typically 40 per cent.
With clause 9, we want to take the reforms that we made in 2002 a step, or indeed a couple of steps, further. We want to allow more people to be deemed to be earning at the low earnings threshold, thus meeting our objective of modernising the contributory principle by making work in care count equally for state pension purposes. This would include those awarded child benefit for children up to the age of 12, approved foster carers and those caring for one or more severely disabled people for at least 20 hours a week.
The recognition of carers ensures that equal recognition for caring is made for both basic state pension and S2P. These carers, in addition to those already covered by the original S2P provisions, will accrue state second pensions because they will have the necessary qualifying earnings factor, either through earnings alone or through credits alone, as before.
Clause 9—this is quite important—will also help those who currently just missed out on accruing S2P in a particular year because they worked for only part of that year and had caring responsibilities for the remainder of the year. It will allow people to combine their credits from caring, for example, with their earnings to bring them into S2P.
I am sure that the Committee will welcome the steps that we took in 2002 and the significant improvements that this Bill makes.
My technical amendment No.88 does not change what we intend to do; it simply corrects a minor drafting error. It makes clear the obvious. It does not require someone who has earned enough to qualify for S2P also to have a credit in a particular year—for instance, if they are a carer—to make that year count for S2P.

Andrew Selous: We welcome the clause, as it means that a wider range of carers, parents and disabled people will be treated as earning at the lower earnings threshold of £12,500 a year for 2006-07 for state second pension purposes. We particularly welcome the fact that the labour market attachment test, which required people to pay class 1 national insurance contributions for a 10th of their working life since 1978, will no longer apply. We are especially pleased about the provision as it affects carers.
I have just one question for the Minister. The explanatory notes on the Bill state that at present parents who are in receipt of child benefit for a child under six are treated as earning at the lower earnings threshold in respect of S2P. The notes also say that those people in receipt of home responsibilities protection are treated as being at the lower earnings threshold. Paragraph 32 of the explanatory notes defines home responsibilities protection as being awarded to people caring for children under 16. It is a minor point, which I have raised before with the Minister, but I should be grateful if he would clarify the issue of the different ages of children as it relates to qualifying for various levels of pension in the Bill.

James Purnell: That point was covered in an earlier debate. The age in respect of qualifying for the state second pension is going up to 12, and for qualifying for the basic state pension it is going down to 12; the two are being harmonised. There was a question whether we could have a theological debate on the matter, and I assured the hon. Gentleman that we could not. The improvements to the basic state pension more than outweigh the reduction from 16 to 12 and raising the state second pension eligibility to 12 will bring a significant number of people into the state second pension.

Amendment agreed to.

Clause 9, as amended, ordered to stand part of the Bill.

Clause 10

Additional pension: removal of accrual band from 2010-11

Sally Keeble: I beg to move amendment No. 70, in clause 10, page 11, line 14, leave out ‘40’ and insert ‘45’.

David Taylor: With this it will be convenient to discuss the following amendments:
No. 71, in clause 10, page 11, leave out lines 15 and 16.
No. 72, in clause 10, page 11, line 31, leave out ‘40’ and insert ‘45’.
No. 73, in clause 10, page 11, leave out lines 32 and 33.
No. 74, in clause 10, page 12, line 7, leave out ‘40’ and insert ‘45’.
No. 75, in clause 10, page 12, leave out lines 8 and 9.

Sally Keeble: I shall be brief so that the Minister has time to respond before we adjourn. The amendments would make the state second pension more flat rate.  They would bring forward the flat-rating of the accrual state second pension to increase redistribution rather than giving increased benefits to the higher earners. That would mean that the state second pension would be more targeted towards the lower earners. The amendments would abolish the second accrual rate band, which gives greater benefits from S2P for those earning more than the lower earnings threshold, currently £12,500 a year, with additional benefit accrued on earnings up to the upper earnings limit.
The band would slowly erode anyway under the present system, so that S2P would be flat rate by 2030. Abolishing it now would enable a greater level of flat-rate benefit to be paid to all through an increase in band 1 to accrual rates of 45 per cent., which would give greater support from the state for all, rather than the state pension system delivering more for higher earners. The higher earners can, of course, save for themselves and can accrue a greater retirement income through private savings either in existing schemes or through the proposed system of personal accounts.
Generally, there has been a lot of criticism of the Bill for not providing for pensioners’ needs now. I do not agree; the present generation of pensioners is supported by other means. Pension credits have been mentioned, and there are also things such as fuel allowance, the increase in the personal allowance and the introduction of the 10p starting rate for tax. However, the group that I have been concerned about consistently—they are, largely, the people we are talking about in relation to the state second pension—is women pensioners. They will start to see some benefits under this scheme, but will miss out on the more general improvements that will come, either through the restoration of the earnings link and the reduction to 30 years’ contributions or because they are not of the generation that is earning now and getting the same access to pensions as men thanks to higher earnings and different working patterns. That gives us a generation of women between now and about 2020 or 2030 who may need more financial support in retirement. Bringing forward the flat rate in S2P and making it more redistributive will make it more supportive for that particular group at a critical stage before the other improvements come through.

Nigel Waterson: I appreciate that the hon. Lady’s amendments aim to make the Government’s proposal, which is already redistributive, even more so.

Sally Keeble: That is right.

Nigel Waterson: Does she accept that even on the Government’s proposals, let alone hers, anybody earning more than £18,000 a year would continue to pay the same level of national insurance contribution, but would have his or her S2P benefit significantly reduced? Does she think that that is fair?

Sally Keeble: There is clearly an issue of who should benefit from the different schemes. It is important that measures that are designed particularly to support those on low earnings should provide adequate support to lift them out of poverty. Under my proposals, women would have just over £135 a week, which is not a huge amount for people to live on. Of course it would be nice to give more money to everybody, but people earning the amounts that the hon. Gentleman mentions are more likely to have made provision through other means, or may have savings.
 We have to ask who should be supported by the state and what we are trying to achieve. Nobody wants to take money away from anybody, but if we are trying to ensure that women on low incomes, perhaps in marginal areas of employment, can have a better income in retirement without going on to means-tested benefits, is it not sensible to make the measures that are designed to support people on low incomes more rather than less redistributive and bring them in earlier rather than later? That is the argument behind these proposals.
It would be helpful if my hon. Friend the Minister could indicate at what point the Government would introduce the flat-rate £1.40 a week band, and when he would expect S2P to become entirely flat rate. Is there any scope for that to happen before 2030?

James Purnell: I am genuinely grateful to my hon. Friend for her amendment. She will be glad to know that this one saves money until 2050, and then it has quite a big spike. In her ping-pong with the hon. Member for Eastbourne, she can quote this one. The precise financial implications after 2050 are that the costs start to grow—up to £7.5 billion annually by 2070.
The reason why the amendment would reduce the overall cost is that it moves towards immediate flat-rating and, therefore, takes out of the Bill the transitional earnings relation. The issue is worth probing slightly. First, the Conservatives say that they support the Bill overall, but their position here is slightly more tentative. Every now and then we read in the Daily Express or Daily Mail that they are against the Bill on the basis that it is some huge stealth tax. The truth is that it is not a stealth tax. Everybody, in all earnings brackets, benefits from the Bill. Secondly, the Conservatives do not have an alternative proposal, unless they are proposing to go back to the old state earnings-related pension scheme.

David Taylor: Order. Will the Minister return to the subject of the amendments?

James Purnell: Of course. I will stick closely to the amendments, which are about when we go towards flat-rating. What I have been pointing out all the time is that not going towards flat-rating would cost about £10 billion per year. That is a spending commitment, if that is what the hon. Member for Eastbourne meant in his intervention.
What would the effect of the proposed changes be? A low earner would—

Nigel Waterson: We are now in a twilight zone, where the Minister is making spending commitments for us. To be clear, our concern, which I will deal with in greater detail later in the clause, is that the Minister always lumps together the increase in the basic state pension when he looks at the effects on higher earners. However, higher earners need to be aware that, even without the amendments tabled by the hon. Member for Northampton, North, the proposals are redistributive—highly so, according to some calculations. That is our point.

David Taylor: Order. This is not a clause stand part debate. Can we return to the subject of the amendment?

James Purnell: I take your directions clearly, Mr. Taylor, and we can return to the issue later.
It is worth reminding the Committee that the state second pension is made up of two components. Everybody who pays into the state second pension, or is credited into the system, is assumed to earn at least £12,500, whether they do or not, which provides for them to receive the flat-rate amount of S2P. In addition, earnings over £12,500 and up to £33,540 attract an earnings-related component to the state second pension. The Pensions Commission recommended that the earnings-related component should be withdrawn to make way for personal accounts.
The commission analysis identified three options for accommodating the withdrawal of earnings relation with the emergence of personal accounts. First, the commission considered stopping earnings relation overnight, which would be the effect of the amendment tabled by my hon. Friend the Member for Northampton, North. At the other extreme, the second option was continuing with the existing withdrawal path of earnings relation, which would see us out of the system by the mid-2050s. The third option, which the commission recommended and we support, was to accelerate the withdrawal of earnings relation by freezing the upper earnings limit at the point where accruals to S2P end. This would see earnings-related accruals out of the system by around 2030. I can confirm that our goal is to get to that point in 2030. There are provisions in the detail of the clauses to allow for changes to be made around that date to achieve that and to revoke those parts of the legislation that would by then have become otiose.
 The commission recommended that option, which is what we are doing. A sudden move to flat-rating, which the amendments aim to deliver, would impact not just on those who would otherwise get a transitional amount of earnings relation, but on the contracting out of state second pensions. That could have an unpredictable and quite damaging effect on final salary schemes, which, of course, are supported by the contracted-out element related to S2P. Given the importance of final salary schemes, we decided that that would not be the right approach and, indeed, the Pensions Commission has observed that a gradual decline in the rebate would be the most appropriate policy.
The second objective of the amendment is to increase the accruals rate of the flat-rate element from 40 to 45 per cent. That would make the flat-rate element more generous. We have taken a different approach with our simplification of S2P—the heart of clauses 10 to 12, which we will discuss in the relevant stand part debates. Suffice it to say that our approach is simpler to understand and strikes the appropriate balance between flat-rating and a transitional amount of earnings relation. I therefore urge my hon. Friend to withdraw her amendment.

Sally Keeble: That explanation was very helpful. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

David Laws: I beg to move amendment No. 64, in clause 10, page 12, line 15, at end add—
‘(7) The Secretary of State shall publish estimates, no later than 1st April 2008, of how many people he expects to receive less than £135 a week in Basic State Pension and Second State Pension combined in 2030 and 2050.’.
The amendment is similar to the 29th recommendation from the Select Committee on Work and Pensions in its report on the Government’s pension reform proposals and came in the context of a statement from the Government in response to the consultation on the White Paper in October 2006. In paragraph 57 of the White Paper, the Government pointed out that the median value of a state pension for those reaching state pension age in 2050 would be £135 and that anyone with a good working or caring life would be entitled to about that amount. The Government have, of course, already responded to the Select Committee’s recommendation by publishing estimates, in October 2006. They project that under the White Paper proposals by 2050 about half the number of individuals reaching the state pension age will have a total state pension entitlement of at least £135 per week, in today’s earning terms, and that two thirds will have an entitlement of at least £125 per week.
The amendment, which is a probing one, is designed to invite the Government to keep closely under review the level of pension provision for individuals of the type just mentioned by the hon. Member for Northampton, North—those on lower earnings—particularly given concerns that the new personal accounts will not necessarily be very attractive to those on low incomes because of the extent of means testing. It is important, therefore, that we have a good and constant assessment not only of how much they can expect from their basic state pension and state second pension provision, but of how the personal account provision will affect them in the future in order to ensure that it is an adequate replacement for the benefits that the Government would have sought to deliver more securely through the existing system.

James Purnell: I am grateful to the hon. Gentleman for tabling the amendment, although he could also have tabled a parliamentary question, to which I would have been equally happy to reply.

It being One o’clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order.

Adjourned till this day at Four o’clock.